A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A) rise; MP; right
B) fall; IS; left
C) fall; MP; left
D) rise; IS; right

Question

Quizplus · Accepted Answer

A reduction in government spending causes a decrease in aggregate demand, which shifts the IS curve to the left. This leads to a decrease in the equilibrium level of aggregate output at any given interest rate.

A Reduction in Government Spending Causes the Equilibrium Level of Aggregate